Services and Metropolitan Development

International Perspectives

Peter W. Daniels

• Publisher: Routledge
• Year: 2002
• Print ISBN: 9780415008525
• eBook ISBN: 9781134985142
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Geography
• Index: Geography

The dynamics of national and international urban systems, as well as individual metropolitan areas, are closely connected with the decisions and actions of firms and institutions in the service sector. Services and Metropolitan Development explores the processes guiding both the development and the spatial impacts of services on the urban system and individual areas. The book describes the symbiotic relationship between the internationalisation of services and the effects of this re-structuring on urban systems.

The multidisciplinary nature of the subject and its global development are reflected by the international range of contributors, specialists in geography, business management, economics and public administration. The book analyses the theoretical, conceptual and measurement issues confronting research on the development of services in North America, Northern Europe and Australia.

1
Service sector restructuring and metropolitan development:
processes and prospects

P.W.Daniels

ECONOMIC TRANSFORMATION AND SERVICES

The economic and urban landscape is increasingly shaped by forces operating at a global rather than a national scale (Cooke 1986; Dicken 1986; Knox and Agnew 1989). Although the transition from pre-industrial, through industrial to post-industrial economic structures is variable in time and space, particularly between core and periphery, it is clear that an increase in the ‘openness’ of individual national economies is a key characteristic of the transition. As the Industrial Revolution unfolded longdistance economic interaction became a necessity because of the growing discontinuity between economic and political institutions (earlier economic landscapes had been dominated by single major players such as China) (Knox and Agnew 1989). Such fragmentation encouraged capitalist modes of production and more diverse division of labour. But some nations within this more fragmented economic system responded more quickly than others to the opportunities for trade or market control, thus promoting unevenness in rates of development and therefore in the spatial effects of capitalist production.

The distinction between dominant cores, specializing in particular types of manufacturing industry and in international trade, and peripheries dominated by cash-crop production on large estates or plantations was already part of the pre-industrial foundation for the subsequent development of global economic landscapes (Knox and Agnew 1989). The way in which the world economy was beginning to function was accompanied by significant impacts on settlement and urbanization (Johnston 1980). The hierarchical systems of settlement both within countries and accompanying colonial expansion into overseas territories were further strengthened. Mercantile capitalism was the basis for these developments which were subsequently carried over to industrial capitalism with some additional dimensions. These included agglomeration of manufacturing activity, the introduction into the urban hierarchy of specialized towns (in heavy manufacturing, transport, resource extraction) and a continuation, often with an accelerating trajectory, of the expansion of the primate cities already extant during the pre-industrial/mercantile capitalist period. There was also an important extension of a world-economy, initially largely centred in Europe, to a truly global scale with increasing interdependence between core and periphery and further developments in the spatial division of labour (see Wallerstein 1979).

According to Lash and Urry (1987) industrial capitalism makes a further transition to organized capitalism (see also Martin 1988). Among the principal features are the increasing separation of ownership from control of economic organizations (including a related development of managerial hierarchies), and the dominance of particular regions by large metropolitan areas. This is a necessary prerequisite for the emergence of advanced capitalism. It also signifies that global interdependence is not a feature of economic organization that has emerged only recently. Indeed the ‘ascent of the industrial core regions could not have taken place without the foodstuffs, raw materials and markets provided by the rest of the world’ (Knox and Agnew 1989:169); the events that have unfolded during advanced capitalism are to a considerable extent a ‘fine tuning’ or ‘restructuring’ of an existing system of metropolitan hierarchies and organization.

It will also be apparent that the foundation of industrial capitalism and its global expression was provided by manufacturing production and the harnessing of human and physical energy. Service industries were essentially cast in a supporting role. The harnessing of knowledge or information for the economic development process was in its infancy during organized capitalism but has since, arguably, become more important than physical energy in the development process. Advanced capitalism is founded on knowledge and information as capital rather than on human energy and mechanical energy. One indicator is the way in which the manufacturing component of advanced economies has been contracting (Table 1.1): employment in transformative activities (construction, manufacturing, other) decreased from 28.2 per cent to 23.1 per cent of all employment in the United States between 1973 and 1984, from 42.3 per cent to 33.9 per cent in Japan (1971-84) and 38.7 per cent to 32.2 per cent in France (1971-84) (Elfring 1988; UNCTAD 1989; see also Riddle 1986; Cuadrado and Rio 1989). The share of services in the gross national product of fifty-eight countries (out of a total of eighty-three providing data to the World Bank) has increased over the last twenty years from an average of 55 per cent in 1965 to 61 per cent in 1985 for developed market economies, and from 42 per cent to 47 per cent respectively for developing countries (Dunning 1989). Dunning lists six conditions as determinants of the share of services in a country’s GNP: the level and pattern of demand for consumer services; the extent to which services enter into the exchange economy; the complexity of the production process and the role of services within it; the organization of service production; the economic structure of the country; and the state of technology in supplying services or goods-embodied services.

Table 1.1 Employment by industry (%) in United States, Japan and France

This is not to say that manufacturing industries do not use knowledge and information. Quite the contrary, these have become essential inputs to the production process. The decisions made by the manufacturing sector on how to use or to acquire these services for product innovation and development has been one of the factors contributing to the growth of certain service industries (see for example MacPherson 1989). Such is the specialization of the inputs represented by some services, however, that it is sometimes easier to purchase them from specialist suppliers than to produce them in-house. The process of externalization has therefore stimulated the growth of service producers, although some would argue that it is simply a redistribution of work which essentially owes its origins to the manufacturing sector. It reflects a shift in how production is taking place as well as in what is being produced (Noyelle and Stanback 1988). Thus, between 1975 and 1981 expenditure on producer services in manufacturing as a proportion of output increased from 13.7 per cent to 16.1 per cent in Italy, 7.7 per cent to 10.1 per cent in the UK, and from 12.8 per cent to 14.1 per cent in West Germany (Green 1985).

Advanced capitalism has been accompanied by very large increases in the geographical extent of markets, especially in relation to services. This is intimately connected with developments in technology which have revolutionized both the quantity and types of information which can be handled using electronic methods. In addition, of course, technology has transformed the time/distance environment within which information (services) is exchanged; satellite technology and glass fibre optics, for example, enable almost instant communication between locations scattered around the globe. The interaction between the flexible geography of markets and the enabling function of technology has provided the spur for the growth of large companies which can afford the costs of operating in extensive markets (including the investment in technology) and which are best able to protect their market share by diversifying and/or controlling as much of the supply side as possible. Large manufacturing corporations emerged during organized capitalism; large service corporations have become prominent players in those economies that have moved towards advanced capitalism.

The appearance of completely new markets for services or new services for markets has not only contributed to the expansion of service organizations; governments have become increasingly involved in creating more deregulated, yet properly monitored and controlled, environments for business. The latter is seen as essential if national economies are to retain or even to increase their share of advanced services which in certain respects, have more flexibility in their choice of location than ever before. But deregulation of financial markets or telecommunications services also requires mechanisms and institutions for ensuring that the more ‘open’ environment operates fairly and with due regard for the public interest. New service-type jobs therefore result. In addition, the rising incomes that have accompanied post-war growth of advanced economies have encouraged the demand for public non-profit services such as health and education.

There have therefore been some selective trends in the growth of service employment. While the growth arising from final demand (consumer services) levelled off during the 1980s, it has been rapid in public sector (non-market) services provided collectively to consumers. The highest rate of employment growth, however, has taken place among services associated with intermediate demand (producer services) from other industries (see for example Stanback 1981; Gershuny and Miles 1983; Marshall et al. 1988; Elfring 1988, 1989).

EXPLANATIONS AND SYMPTOMS OF THE SHIFT TO SERVICES

It is important to stress that the factors already cited as contributing to the growth of service activity have actually only entered the equation comparatively recently. There are a number of more established explanations. First, that the shift to services is related to the increasing demand generated by final consumers with greater disposable income as societies become more prosperous (the ‘income elasticity’ explanation). Second, the growth of services is related to the increasing demand for producer services (from other sectors in the economy). These explanations were originally advanced by Clarke (1940), Fisher (1935) and later by Greenfield (1966). Third, the lower rate of increase in productivity of services compared with manufacturing has ensured a steady transfer of labour as demand for service output has grown. It has been difficult for these ‘conventional’ explanations to attain credibility largely because of the problems of measurement. The productivity of services is notoriously difficult to measure (see for example Gershuny and Miles 1983; Noyelle and Stanback 1988; Elfring 1989); the output is unstandardized, quality varies widely, price indexes are not available and, for the public sector services, the prices do not represent the full costs of production because of the use of subsidies. Noyelle and Stanback (1988:22) conclude that ‘for at least a number of the services, productivity is not only unmeasurable…but may, indeed, be an inappropriate concept to evaluate the contribution of services to the workings of advanced economies’. In relation to the income elasticity of demand explanation, Gershuny and Miles (1983) suggest that it is the price elasticity of demand for services that is more significant since the rising relative price of services will cause users to find innovative ways of providing service functions. This is the key, they suggest, to their more optimistic view of the prospects for continuing expansion of service sector employment during the 1990s (see also Gershuny 1978). Elfring (1989) also provides data showing that price increases in services have been above average between 1960 and 1984.

While the arguments continue about how best to measure and explain the emergence of services in all economies, there is probably more agreement about their impact on the labour force. After acknowledging the even greater problems of assembling suitably comparable occupation data, Gershuny and Miles (1983:58) conclude that ‘the patterns of change over time, are remarkably similar between countries’, that the ‘“tertiarization” of the economy is more a consequence of changing occupational profiles within industrial sectors than of changing patterns of demand between them’ (p. 65). On the basis of data for France, Ireland, Italy and the UK they show that manual occupations declined everywhere, administrative, technical and clerical staff increased, as did clerical workers although the increases for the latter slowed down during the 1970s. Transport workers in services declined in the 1970s but then numbers increased in manufacturing (as large food producers, for example, adopted greater vertical integration to include distribution functions (see for example, McKinnon 1989)). Put another way, white collar occupations have been increasing while blue collar occupations have been declining, in all four countries. This change is not unrelated to innovations in production in both manufacturing and service industries; these require greater knowledge and information inputs than physical inputs.

But the significance of the shift to white collar occupations (in relation to the theme of this volume) becomes clearer when some related changes in the workforce are also outlined. The first major change has been the increasing participation of women in the white collar labour force, many of them in part-time employment. In the US for example, 14.5 million jobs were added to the economy in the 1980s; some 25 per cent were part-time and almost 66 per cent have been filled by women (Christopherson 1989). Approximately 89 per cent of the part-time labour force is employed in services with a large proportion concentrated in retail and in wholesale trade. But the fastest growing group is temporary workers most of whom are women who are mainly employed by large firms in both consumer and producer services (Christopherson 1989). It will be apparent that these changes in the service industry labour force represent a more flexible approach to production necessitated by the preference of women for part-time work or the needs of firms wishing to respond quickly to business cycles which are much shorter. Rapidly fluctuating demand for a wider range of more specialized service products also creates variable labour demand. The use of temporary workers allows them to get around social security and related employment regulations which inhibit rapid adjustment of labour inputs in very competitive markets.

A second change that has accompanied the shift to services and whitecollar occupations has been a rise in demand for better-qualified labour (Bertrand and Noyelle 1986). An expansion of administrative, professional and technical occupations has accompanied the above-average growth of producer services. As knowledge and information-intensive activities they require a high proportion of employees with specialized knowledge or professional qualifications in areas such as computer programming, design, marketing, securities dealing, risk assessment, actuarial work, or futures trading, for example. The combination of high growth in producer services, globalization of large service organizations and expanding international trade in services means that the availability of highly trained, well educated labour is a crucial discriminant for the locational choice of such services (Bertrand and Noyelle 1986; Dunning 1989). Differences between national educational systems produce contrasting labour markets at international level while there will also be wide variations within countries such as France (Pumain and Saint-Julian 1986). But there is also a simultaneous process of polarization in services employment; low-skill, low wage occupations have also experienced significant growth, especially in consumer services and to a lesser degree in non-profit, public services.

LOCATION AND INTERNATIONAL TRADE IN SERVICES

It has been necessary to outline the relationship between the transformation of economies and services because it ultimately translates into distinctive spatial outcomes at the national and international level. This is most evident for producer services which are the focus of attention in most of the contributions to this volume. Before turning to the locational outcomes that have accompanied the expansion of producer services it is, however, necessary to consider one other development which helps to understand these patterns; trade in services.

A good deal of the international provision of services such as shipping, transport and other travel is trade-orientated while banking, finance services and telecommunications are foreign direct investment (FDI) orientated. Thus, the services share of FDI outflows has risen from 41 per cent at the beginning of the 1970s to 49 per cent in 1978–80 for the UK and from 20 per cent to 67 per cent in 1984 for Japan (United Nations 1983). Such trade had been taking place between countries such as the UK and its trading partners since the nineteenth century but until recently it had comprised but a minor share of total world trade. Information technology has, however, transformed the conduct of transactions in banking, accountancy, insurance, advertising, computer and information technology services and some government and education services. One indicator of the scale of the recent increase in services trade is that it has, for the first time, been included on the agenda for the Uruguay round of negotiations for the General Agreement on Tariffs and Trade (GATT).

An immediate problem here is the definition of services trade; what, for example, is the distinction be...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• TABLES
• FIGURES
• CONTRIBUTORS
• PREFACE
• ACKNOWLEDGEMENTS
• 1. SERVICE SECTOR RESTRUCTURING AND METROPOLITAN DEVELOPMENT: PROCESSES AND PROSPECTS
• 2. TRANSITIONAL ECONOMIC BASES: FROM THE MASS PRODUCTION SOCIETY TO THE WORLD OF FINANCE
• 3. THE GROWTH OF INTERNATIONAL FINANCIAL SERVICES AND THE EVOLUTION OF INTERNATIONAL FINANCIAL CENTRES: A REGIONAL AND URBAN ECONOMIC APPROACH
• 4. THE GLOBAL INTELLIGENCE CORPS AND WORLD CITIES: ENGINEERING CONSULTANCIES ON THE MOVE
• 5. SERVICES AND COUNTERURBANIZATION: THE CASE OF CENTRAL EUROPE
• 6. SERVICE ACTIVITIES AND REGIONAL METROPOLITAN DEVELOPMENT: A COMPARATIVE STUDY
• 7. TRENDS IN THE PRODUCER SERVICES IN THE USA: THE LAST DECADE
• 8. THE SERVICE SECTOR AND METROPOLITAN DEVELOPMENT IN CANADA
• 9. PRODUCER SERVICES AND METROPOLITAN DEVELOPMENT IN AUSTRALIA
• 10. ADVANCED OFFICE ACTIVITIES IN THE RANDSTAD-HOLLAND METROPOLITAN REGION: LOCATION, COMPLEX FORMATION AND INTERNATIONAL ORIENTATION
• 11. THE INTERNATIONALIZATION OF NEW YORK SERVICES
• 12. FOREIGN BANKS, TELECOMMUNICATIONS, AND THE CENTRAL CITY
• 13. INFORMATION INDUSTRIES: NEW YORK’S NEW EXPORT BASE
• 14. NETWORKED PRODUCER SERVICES: LOCAL MARKETS AND GLOBAL DEVELOPMENT